From the perspective of a veterinary practice management consultant, few management tools are used less often than budgets. This is too bad, because a budget is a powerful tool for managing your practice.

There are many reasons why practice owners and managers ignore budgeting. First, budgets take time to create - or they should if they are going to help you make good decisions. Admittedly, there are some fast and easy methods for preparing a budget. For example, you can use the actual results from 2015 to create a budget for 2016. However, like many things in life, the fast and easy method doesn't necessarily result in a greatest of outcomes. If you are confident that 2016 will be exactly like 2015, with the same revenue every month, the same number of payrolls per month, the same cases and clients and employees per month, then using last year's budget may work for you. For most of us though, every year is a new adventure!

Before a proper budget can be prepared, the hospital's owners and managers must decide on goals for the coming year. The more complete the list of goals the better, so each area of the hospital must be considered. Some goals may be achievable in a single week or month, while others may take several months or more than a year to complete. In those situations, a long term approach is needed, and the budget may span more than a single calendar year.

What do goals have to do with a budget? Unless you are in a position where cash is unlimited, there is only so much money to go around. If the practice bank accounts are flush, it can be tempting to spend money on something you can use but is not necessary for achieving your goals. Budgets help you keep your plans at the forefront of your thoughts. You may still decide to use the money in this way, but you will make an informed decision.

Large veterinary practices may prepare budgets by department (companion animal vs. equine) and referral centers may budget by specialty (surgery vs. ophthalmology), but general practices usually budget for the entire hospital. Involve others in gathering information, making phone calls and otherwise tracking down numbers. The more involved employees are in the budget process, the more they will feel invested in the outcome.

With budgets, the thought and effort that you put into creating them are part of what makes them such valuable management tools. While researching costs and estimating payroll, you learn a lot about how the practice works. Also, the more detailed the budget is, with insurance costs broken down by type, with continuing education and dues estimated by employee, for example, the better the budget will match reality. Even so, there comes a point when the value you generate by researching one more expense exceeds the time it takes to obtain the information. Large companies have entire departments that manage their budgets. Your practice has you. Know when close enough is close enough.

Once the budget is complete and the year is underway, comparing budgeted to actual performance allows you to evaluate results and make course corrections, if necessary. Because regular review is critical to the success of your budget and achieving your goals, you must have the ability to quickly and easily run comparison reports. If you use QuickBooks, enter your budget into QuickBooks so you can quickly and easily compare budget to actual income and expenses at any point in time. Entry can be done by hand or the numbers can be imported from Excel.

Regardless of how adept you become at budgeting, the budget will never match the actual revenues and expenses of your hospital. It isn't intended to do so. Much more important than how different the budget is from the actual numbers is why the numbers are different. When reviewing budget to actual reports, try to explain why the difference occurred. If gross fees are 10% higher than the budget, is it due to favorable weather? An influx of new area residents? A competitor closing its doors? If payroll is lower than budgeted, were there fewer payroll runs this year than last? Has there been some turnover in long-term employees and lower paid staff hired to replace them? You may not be able to explain every variance, but where you can, you will have information to use to manage your practice, to take advantage of opportunities and quickly address areas that are not performing as expected.

Many people believe that the purpose of a budget is to minimize spending. How many times have you heard that something can't happen because "it is not in the budget"? From our perspective, a budget is not a constraint but a powerful tool for ensuring you have the resources available to reach your goals. We invite you to try a budget this year and let us know if you agree.